Citrix Systems Earnings Preview: Keep An Eye On Revenue Guidance

Oct.26.11 | About: Citrix Systems, (CTXS)

Summary

Cloud-based computing companies have delivered solid earnings releases so far this quarter, evidenced by the results from VMware (NYSE:VMW) and F5 Networks (NASDAQ:FFIV). The next on tap is Citrix Systems (NASDAQ:CTXS).

Citrix is expected to report Non-GAAP Earnings per share of $0.58, the high end of the previously provided range of $0.56 to $0.58. Analyst estimates are as high as $0.62, implying the Street may be pricing in above-consensus results. Revenue is expected to fall in at the mid-point of the targeted range of $540.0 million to $547.0 million. Keep a close eye on revenue guidance for the 4Q period. Estimates call for a 12% sequential improvement to around $609.3 million. Anything less would be seen as a disappointment considering the recent run-up.

Aside from the future outlook, the potential impact of slower sales in business and enterprise given the recent economic weakness is a concern facing Citrix. Valuation is another factor, with the shares now trading at 37.1x trailing earnings. Despite those fears, Citrix is a leader in desktop virtualization and application-delivery software, with earnings expected to grow at a 16% clip over the next five years, supporting a higher valuation. Data center spending also remains strong and the company is seeing demand for new products, including the XenDesktops.

Note that the shares have traded higher the day after each of the four previous earnings releases, with Non-GAAP EPS topping estimates by an average margin of 14.4%. With that being said, Citrix shares are still vulnerable to any missteps and a potential pullback if results are not at the high end of forecasts.

Chart Review

Citrix shares have rallying in advance of its quarterly earnings release, pushing through resistance at $62.50. This level now becomes support in the event of a miss on earnings or revenues. Resistance is at the 200-Day SMA near $70. The 20-Day SMA recently crossed above the 50-Day, while the RSI and MACD are pointed higher – signs of positive momentum ahead of the 3Q numbers. (Chart Courtesy of StockCharts.com)

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.